Category Archive: Uncategorized

Posted on January 5, 2018 in: Uncategorized|Comments Off on These Cities Have The Biggest Housing Bubbles [See the list]

The S&P CoreLogic Case-Shiller National Home Price Index for October, released this morning, jumped 6.2% year-over-year (not-seasonally-adjusted), up from 6.1% in September. The index has now surpassed by 6.0% the crazy peak in July 2006 of Housing Bubble 1 and is up 46% from the trough of Housing Bust 1:

Real estate prices are subject to local dynamics but are impacted by national and even global factors, such as the consequences of monetary policies, particularly in places where this liquidity washes ashore. This creates local housing bubbles. And they operate each on their schedules. When enough of these local bubbles occur simultaneously, it becomes a national housing bubble as depicted by the chart above.

The Case-Shiller Index is based on a rolling-three month average; today’s release was for August, September, and October data. Instead of median prices, the index uses “home price sales pairs.” For instance, it takes sales data from a house that sold in 2011 and then again in 2017, incorporates other factors, and uses algorithms to adjust the price movement into an index data point. The index was set at 100 for January 2000. An index value of 200 means prices as figured by the algorithm have doubled since then.

Here are the standouts among the housing bubbles in major metro areas:

Boston:

The index for the Boston metro area ticked down on a monthly basis, the first decline after 22 months in a row of increases. It’s still up 6.9% year-over-year, a slightly slower pace then the 7.2% year-over-year surge in the prior month. During Housing Bubble 1, it soared 82% from January 2000 to October 2005, before the plunge set in. Now, after six years of relentless price increases, the index exceeds the peak of Housing Bubble 1 by 12.7%:

Seattle:

The Case-Shiller home price index for the Seattle metro declined again by a tad on a month-to-month basis — first back-to-back declines since the end of 2014! However, the index is not seasonally adjusted, and a slight downturn this time of the year was not unusual before 2015. So this may be a sign that the housing market in Seattle is returning to some seasonal patterns, rather than just spiking no matter what. The index is up a breath-taking 12.7% year-over-year, 20% from the peak of Housing Bubble 1 (July 2007), and 79% from the trough of Housing Bust 1 in February 2011:

Denver:

The index for the Denver metro rose again on a monthly basis, the 24th monthly increase in a row. It is up 6.6% year-over-year and has surged 44% above the prior peak in the summer of 2006. Note that Housing Bubble 1 and subsequently Housing Bust 1 mostly spared Denver. But in 2012, Housing Bubble 2 erupted with a vengeance:

Dallas-Fort Worth:

The index for the Dallas-Fort Worth metro rose again on a monthly basis — the 45th month in a row of increases. It is up 7.1% year-over-year and 43% from the prior peak in June 2007. Similar to Denver, Housing Bubble 1 and Housing Bust 1 mostly spared North Texas. But prices began to surge in 2012:

Atlanta:

Home prices in Atlanta actually ticked down a smidgen from the prior month, but are still up 5.1% year-over-year and are 2.6% above the peak of Housing Bubble 1 in July 2007. From that peak, the index plunged 37%. It’s now up 70% since February 2012:

Portland:

The Case-Shiller index for Portland declined a tad, and is now back where it had been three months ago — the first monthly decline since September 2016, and in line with seasonal price patterns. The index is up 7.1% year-over-year and 73% in five years. It is now 20% above the crazy peak of Housing Bubble 1 and has ballooned 123% since 2000:

San Francisco Bay Area:

The index, which covers the county of San Francisco plus four Bay Area counties — Alameda, Contra Costa, Marin, and San Mateo (the northern part of Silicon Valley) — jumped 1.2% for the month. It had however ticked down in August. It’s up 7.7% year-over-year, up 29.5% from the crazy peak of Housing Bubble 1, and up 84% from the end of Housing Bust 1. The index has surged 148% since 2000:

Los Angeles:

The index for the Los Angeles metro ticked up again for the month and is up 6.5% year-over-year. The sugar-loaf Housing Bubble 1 was in a category of its own, with home prices skyrocketing 174% from January 2000 to July 2006, before collapsing and surrendering much of the gains. The index has skyrocketed since the end of Housing Bust 1 and is getting closer to beating the prior insane peak, but is still 2.0% shy:

These charts are visual depictions of asset price inflation. A house whose price jumps 20% in three years hasn’t gotten 20% bigger. What happened is that the purchasing power of the dollar with regards to these assets — since “homes” have become a global asset class — has been demolished by the Fed’s monetary policies that generated little or no wage inflation, moderate consumer price inflation, and extraordinary asset price inflation. In other words, the value of labor (wages earned) with regards to assets, such as homes, has been crushed, and housing costs in general, including rents, are consuming an ever larger slice of wages. This has turned into the “affordability crisis” now gripping many of the big urban areas in the US. Which can hardly be the foundation of a healthy economy.

Posted on January 5, 2018 in: Uncategorized|Comments Off on Most Expensive Zip Codes In The US [FULL LIST]

The annual list of America’s Most Expensive ZIP Codes is compiled by Altos Research, which looks at median home price data for more than 29,500 ZIPs covering 95% of the U.S. population. Here we highlight the 20 priciest postal codes.

Posted on January 5, 2018 in: Uncategorized|Comments Off on Experts Say 2018 Set To Be Best Year Since Housing Crisis

Although December’s job report numbers disappointed experts’ expectations, many explained that the end-of-year increase in construction jobs is just what the housing market needed. Total nonfarm payroll employment increased by 148,000 in December, the report showed. This is down from November’s upwardly revised increase of 252,000 jobs.

This number is far below experts’ expectations for December. Experts predicted the month would show an increase of 190,000, 210,000 or even 250,000.

“The December jobs report was modestly positive, as employment gains were below expectations but still strong enough to keep the unemployment rate steady,” said Curt Long, National Association of Federally Insured Credit Unions chief economist.

“Wage growth remains low, but did tick up slightly to 2.5%,” Long said. “Overall, the job market performed well in 2017 and is a key reason why the economy is poised for its best year since the crisis in 2018.”

And despite the lower-than-expected overall numbers, experts were still optimistic due to the 30,000 increase in construction jobs.

“December’s increase in construction labor is a hopeful reminder that things will eventually get better for our severely depleted housing market,” realtor.com Senior Economist Joseph Kirchner said. “In fact, if this trend gains momentum, it could address one of the largest issues holding back inventory – a lack of construction labor.”

“Let’s hope it does, because the report also shows no end in sight for the insatiable demand we’re seeing in the market,” Kirchner said. “Jobs drive housing demand and with the unemployment rate remaining at its lowest level of the millennium, it’s only going to pick up.”

Another expert agreed, saying the increase in construction jobs was the one bright spot in Friday’s employment report.

“One bright spot we saw in the report is the biggest monthly rise in residential construction employment in 2017, raising hopes for some supply relief for housing this year,” Fannie Mae Chief Economist Doug Duncan said.

One expert explained this increase marked the highest point in construction jobs in seven years.

“Residential construction jobs rose to the highest since 2008 as builders work to add supply given the tight inventory and rising home prices,” LendingTree Chief Economist Tendayi Kapfidze said. “Construction employment increased by 210,000 in 2017, compared with a gain of 155,000 in 2016.”

And while one expert said it’s important not to read too much into economic activity in December, the construction jobs increase, she said, is worth highlighting.

“It’s important not to read too much into a year-end job report as there typically isn’t much economic activity in December,” Redfin Chief Economist Nela Richardson said. “However, the late-year surge in construction jobs is worth highlighting.”

“Construction jobs increased by 30,000 last month, ending 2017 with a total of 35% more jobs added than in the year before,” Richardson said. “This is exactly the type of construction-labor boost the housing market needs to continue to see in 2018 to feed inventory-starved cities that are seeing strong jobs growth like San Antonio, Orlando, Nashville and Salt Lake City.”

But one expert pointed out the construction industry still needs to add many more jobs before it can keep up with growing homebuyer demand, and even suggested solutions such as offering temporary immigration visas.

“As to the supply of homes, construction workers are needed,” said Lawrence Yun, National Association of Realtors chief economist. “In 2017, a net 190,000 new workers were employed in the construction industry, and that also marks a decelerating trend, as the prior three years averaged 284,000 annual additions.”

“With the unemployment rate in the construction industry having fallen from over 20% in 2010 to 5.9% at the year-end of 2017, there could be a little growth to home construction despite the on-going housing shortage,” Yun said. “There needs to be serious consideration in allowing temporary work visas until American trade schools can adequately crank out much needed, domestic skilled construction workers.”

Posted on January 5, 2018 in: Uncategorized|Comments Off on How Real Estate Investors Profit From Trump Tax Plan

Lawmakers scrambling to lock up Republican support for the tax reform bill added a complicated provision late in the process — that provides a multimillion-dollar windfall to real estate investors such as President Donald Trump.

The change, which would allow real estate businesses to take advantage of a new tax break that’s planned for partnerships, limited liability companies and other so-called “pass-through” businesses, combined elements of House and Senate legislation in a new way. Its beneficiaries are clear, tax experts say, and they include a president who’s said that the tax legislation wouldn’t help him financially.

“This last-minute provision will significantly benefit the ultra-wealthy real estate investor, including the president and lawmakers on both sides of the aisle, resulting in a timely tax-reduction gift for the holidays,” said Harvey Bezozi, a certified public accountant and the founder of YourFinancialWizard.com. “Ordinary people who invest in rental real estate will also benefit.”

James Repetti, a tax law professor at Boston College Law School, said: “This is a windfall for real estate developers like Trump.”

The revision might also bring tax benefits to several members of Congress, according to financial disclosures they’ve filed that reflect ownership of pass-through firms with real estate holdings. One such lawmaker, Republican Senator Bob Corker of Tennessee, who’d voted against an earlier version of the legislation, said on Friday that he would support the revised legislation.

Corker said in an interview on Saturday that his change of heart had nothing to do with the added benefit for real estate investors. On Sunday he wrote to Senate Finance Committee Chairman Orrin Hatch seeking an explanation for how the provision came to be included in the final bill after being asked about it by a reporter.

‘Categorically False’

“The suggestion was that it was airdropped into the conference without prior consideration by either the House or the Senate,” Corker said, addingthat he’d been informed over the weekend that a similar provision had been in the House version.

Hatch responded in a letter to Corker Monday that the change resulted after “the House secured a version of their proposal that was consistent with the overall structure of the compromise.” He also said any assertion that Corker had sought the change — or that it was included to benefit real estate developers — was “categorically false.”

Hatch also said he was “disgusted by press reports” that he said had distorted the provision. Senate Majority Whip John Cornyn called initial press reports about the change “completely false and invented” and criticized follow-up coverage.

“The way this phony news story broke and was picked up on social media and in the mainstream media would make a Russian intelligence officer proud,” Cornyn said.

‘Cost Me a Fortune’

Last month, during a speech in St. Charles, Missouri, Trump took pains to tell his audience that the tax-overhaul bill would hurt him personally. “This is going to cost me a fortune, this thing,” he said. “Believe me.”

On Sunday, White House Deputy Press Secretary Lindsay Walters didn’t directly address questions about how the added provision would affect Trump or his son-in-law and adviser Jared Kushner, whose family business also has extensive real estate holdings.

“The president’s goal in tax reform was to create a bill that gives middle-income families a big tax cut and stimulates economic growth so they can continue to feel that relief for years to come,” Walters said in an emailed statement.

It’s impossible to gauge precise effects on Trump, who has departed from roughly 40 years of tradition for presidential candidates by refusing to release his tax returns, saying they’re under audit. Nonetheless, his financial disclosures show he’s used an array of pass-through businesses, including in his real estate ventures.

Trump’s Businesses

Many of Trump’s most lucrative businesses generate income from rents and leases. Trump Tower in Manhattan, with offices and retail stores as well as condominiums, generated $14.1 million of net operating income on $33.6 million of revenue in 2016, according to financials disclosed to Trump’s lenders at the property. Another office tower, 40 Wall Street in New York’s financial district, had $17.4 million of net operating income on $36.9 million of revenue that year, similar filings for that building show.

Trump’s building at 1290 Avenue of the Americas had $77.7 million of net operating income on $137.9 million of revenue in 2016, the lender filings show. Trump owns 30 percent of it. He has a similar arrangement with the building’s majority owner, Vornado Realty Trust, for an office complex in San Francisco.

Kushner’s family owns Kushner Cos., which could also benefit from the revision. Through various LLCs and partnerships, the family collects tens of millions in rent from apartment complexes and office properties in New York, New Jersey and Maryland.

Last-Minute Change

The last-minute change to the tax bill — which combined a capital-investment approach that the House favored with the Senate’s tax-cut mechanism — would, in effect, free up a 20 percent deduction on pass-through business income that would have been off-limits to many real estate firms under the Senate bill. The change would still leave some investment partnerships out: those that have few employees and invest in tangible property like land or artwork, said Michael Kosnitzky, a tax partner at Pillsbury Winthrop Shaw Pittman LLP.

The distinction centers on whether tangible property held by a business is “depreciable” — meaning it can be reflected as declining in value over time under accounting rules — even though it may rise in market value. Depreciable property includes apartment buildings, housing complexes, office towers and shopping centers.

Deciding how to tax pass-through entities, which form the backbone of American business, has been one of the most contentious debates among Republican tax writers in their rush to rewrite the tax code and notch a major policy win by the end of this year. Such businesses, which also include sole proprietorships and “S corporations,” don’t pay taxes themselves, but pass their income to their owners, who then pay tax at their individual rates.

20% Deduction

Because their tax bill would slash the tax rate for “C corporations” — a business type that includes major, publicly traded companies like Exxon Mobil and General Electric Co. — to 21 percent from 35 percent, the Republican tax writers have been under pressure to deliver comparable tax relief to pass-through businesses.

The bill seeks to do that by setting up a 20 percent deduction on pass-through business income — and making it available to both local pizza shop owners and major, nationwide businesses, all while setting up guardrails to prevent owners from mischaracterizing high-taxed wage income as lower-taxed business income.

The deduction is broadly available to owners of pass-through entities up to an income threshold of $207,500 for singles and $415,000 for couples. After that, limits begin to kick in that would prevent various kinds of “service” providers — including doctors, lawyers, investment advisers and brokers, and professional athletes — from receiving its benefit at higher income amounts.

The Senate approved legislation on Dec. 2 that included a way for owners of large firms with lots of employees to avoid certain income limitations on the deduction: They’d be allowed to deduct half of their share of the W-2 employee wages their companies paid out annually.

New Option

That approach would have left out real estate firms, which typically have relatively few employees but large capital investments. For them, the compromise bill offers an additional method: deduct 25 percent of wages paid, plus 2.5 percent of the purchase price — or “unadjusted basis” of their tangible, depreciable property.

But no matter the method, owners would be limited to no more than an overall 20 percent deduction.

Offering the 20 percent deduction to businesses that don’t tend to employ many people is “in a sense contrary to the Administration’s job creation policy initiatives,” said Pillsbury Winthrop’s Kosnitzky.

But “many capital-intensive industries are indirect job creators — putting contractors, subcontractors, tradesmen and other to work,” said Ryan McCormick, senior vice president and counsel at the Real Estate Roundtable, a trade group.

Details of how lawmakers decided on their final approach are sketchy. On Sunday, Senate Majority Whip John Cornyn suggested the change was made as part of a process to “cobble together the votes we needed to get this bill passed.”

“We were working very hard,” he said during an appearance on ABC’s “This Week.” “It was a very intense process.”

The International Business Times, which first reported on the revision’s potential effects on various elected officials, noted that it could benefit several members of Congress who have real estate investments via pass-through businesses. That includes Corker, who was the only Republican senator to vote “no” on earlier Senate legislation. The Senate approved that measure nonetheless on a 51-49 vote, which set the stage for reaching last week’s final compromise with House leaders.

Corker’s Switch

Corker said Friday that he would vote “yes” on the new version — a reversal that could be meaningful for the bill’s chances. Republicans hold a slim, 52-seat majority in the 100-seat Senate, and Republican Senator John McCain of Arizona, who’s being treated for brain cancer, is not expected to vote this week. Corker’s switch gave GOP leaders an extra measure of certainty.

Corker told Bloomberg News Saturday that he wasn’t aware of the new benefit for real estate investors when he decided on Thursday to back the final bill based on a two-page summary he’d seen. The bill text was released Friday.

“I have no earthly idea of how that provision — or, candidly, any other provision — made it in,” Corker said. He also said he didn’t know how the change would affect him financially, adding that “there’s just no way a provision like that would affect me on a big decision like this.”

Corker filed a financial disclosure earlier this year showing that among other interests, he had ownership in Corker Properties X LP, a partnership that owns a building in Chattanooga, Tennessee, according to local property records. Corker listed income from the property between $1 million and $5 million in 2016. Still, it’s not clear how much benefit he might receive from the bill.

Corker cited concerns about the deficit for his previous opposition, and tax writers have done nothing to alleviate the deficit impact. The Congressional Budget Office estimated late Friday that the revised measure would increase federal deficits by $1.455 trillion over 10 years, a projection that’s slightly higher than for the version Corker opposed previously.

The senator acknowledged that his deficit argument was unsuccessful, but said he had concluded that the bill’s overall effect would stimulate economic growth for both corporations and small businesses.

Posted on December 2, 2017 in: Uncategorized|Comments Off on How The Trump Presidency Has Affected Housing (What we know so far)

Investor confidence soared after the 2016 election of Donald J. Trump, sending the U.S. stock market on a tear that would last a full year. It also made housing more expensive. That is because when the stock market rallies, the bond market usually sells off, and bond yields rise. Mortgage rates loosely follow the yield on the 10-year Treasury.

The average rate on the popular 30-year fixed mortgage hovered around 3.5 percent in the fall of 2016 and then shot up to as high as 4.3 percent immediately after the election, according to Freddie Mac. It stayed above 4 percent for the first half of the year and is currently just below that now.

The jump in mortgage rates, however, didn’t immediately dampen consumer or builder confidence, which are both key to the housing market.

Builders were euphoric after the election, anticipating big deregulation in their sector. That has yet to happen, and now builders are fighting the Trump administration over its proposed tax plan, which cuts popular deductions for homeownership.

Housing starts and building permits are currently higher than they were a year ago, but the gains have been slower than expected. Builders complain of high costs for land, labor and materials. The Trump administration’s anti-immigration stance has only hurt the construction labor shortage, which is largely fueled by Mexican workers.

“We need a national immigration reform bill. We have people that are afraid of being deported so they’ve gone underground. It’s just made housing expensive,” said Patrick Hamill, CEO of Denver-based Oakwood homes.

Home prices continue to climb due to the lack of supply, and that has sidelined both first-time and move-up buyers. Affordability continues to weaken, and if interest rates rise further, it will only get worse. Existing home sales have been falling since the summer, the inventory of homes for sale continues to shrink and single-family home construction still lags demand by a lot.

“The important question here is whether the optimism we saw after last year’s election has manifested itself into the housing market this year. We aren’t seeing signs that’s the case,” said Ralph McLaughlin, chief economist at Trulia, a real estate listing site.

“This softening of many of these indicators isn’t necessarily the result of anything the Trump administration has or hasn’t done, but, rather, we were expecting a possible bump in housing and we haven’t seen that yet, unlike the labor market and unlike the stock market,” he added.

Despite soaring home prices in certain hot urban markets, Trulia shows price gains softening around the country. This comes after robust gains during the Obama administration. The first-time homebuyer tax credit, launched in 2008 and expired in 2010, was a bailout after the housing crash and boosted home sales and prices, especially at the lower end of the market.

Under Trump, housing market conditions have worsened in more counties than they’ve improved.

Real estate continues to fuel gains for Blackstone Group LP, which reported a jump in third-quarter profit that exceeded all analysts’ estimates. The shares rose.

Economic net income, a measure of earnings that reflects both realized and unrealized investment gains, was $834.3 million, or 69 cents a share, compared with $687 million a year earlier, New York-based Blackstone said in a statement Thursday. Analysts were expecting 54 cents a share on average and 61 cents at most, according to 13 estimates compiled by Bloomberg.

Gains were widespread. Blackstone’s opportunistic real estate portfolio appreciated 5.5 percent during the three months ended Sept. 30, exceeding the 4 percent rise in the S&P 500 index of large U.S. companies. Drivers included the firm’s investments in Invitation Homes Inc. and Hilton Worldwide Holdings Inc. Blackstone’s credit funds also posted gains across performing and distressed debt strategies, as did the firm’s hedge funds.

Shares of Blackstone, led by Chief Executive Officer Steve Schwarzman, rose 1.2 percent to $33.89 as of 10:24 a.m. in New York as wider markets declined. The stock has gained 33 percent, including reinvested dividends, this year.

Blackstone’s private equity portfolio gained by 3.3 percent. Analysts, who rely on moves in public holdings to help predict firm profits, have little clarity on changes in value of private assets that haven’t been sold or taken public.

Gathering Assets

Real estate led the charge for Blackstone’s asset sales in the quarter. The unit, its biggest at $111 billion, sold $3.1 billion in holdings, including a U.K. office property and a portfolio of French hotels. The firm also continued trimming its stake in Hilton, selling shares it held in both its real estate and private equity funds.

Asset sales helped fuel $625.6 million of distributable earnings, which reflect profits on those disposals and fund management fees, compared with $593.5 million a year earlier.

Despite the disposals, Blackstone’s assets rose at the fastest pace in more than two years. Clients poured into various strategies including tactical opportunities, Asian real estate, hedge funds and distressed credit.

“Fundraising appears to be accelerating into year-end behind solid year-to-date performance,” Jefferies Group LLC analysts led by Dan Fannon said in a note to clients Thursday.

Schwarzman, 70, said in the statement that he expects Blackstone’s assets to continue rising in the fourth quarter. The firm is raising money for its new infrastructure fund, and it’s making a foray into early-stage growth investing,

Overseeing $387.4 billion across private equity, real estate, credit and hedge funds as of Sept. 30, Blackstone is considered a bellwether for the alternative-asset industry. The firm added an additional $10 billion this week with the acquisition of energy investor Harvest Fund Advisors.

Posted on December 1, 2017 in: Uncategorized|Comments Off on 4 Major Cities That Are In Trouble (Housing Market Mini-Bubble)

Home price gains are accelerating again, and in some cities those values are overheating. Four of the nation’s largest cities are now considered overvalued, according to CoreLogic. Home prices in Denver, Houston, Miami and the Washington, D.C., metropolitan area now exceed sustainable levels.

To determine if a market is overvalued, CoreLogic compares current prices to their long-run, sustainable levels, which are supported by local economic fundamentals like disposable income. An overvalued market is one in which home prices are at least 10 percent higher than that level. The rest of the top 10 markets are considered “at value,” but none are undervalued, as prices are higher in all of them compared with a year ago.

“With no end to the escalation in sight, affordability is rapidly deteriorating nationally,” said Frank Martell, president and CEO of CoreLogic. “While low mortgage rates are keeping the market affordable from a monthly payment perspective, affordability will likely become a much bigger challenge in the years ahead until the industry resolves the housing supply challenge.”

Home prices rose 6.7 percent nationally in June compared with June 2016. That is a slightly higher annual gain than May. Prices are now up nearly 50 percent from the trough of the housing crash in March 2011.

The soaring gains now are due to a historically short supply of affordable homes for sale. The number of homes for sale in June was 11 percent lower than a year ago, according to Realtor.com.

“As of Q2 2017, the unsold inventory as a share of all households is 1.9 percent, which is the lowest Q2 reading in over 30 years,” said Frank Nothaft, chief economist at CoreLogic.

While the price gains are widespread, all real estate is still local, and some previously hot markets are actually cooling off. San Francisco is considered at value, with prices up just 5.3 percent, compared with an 8.7 percent annual gain in Denver. The New York City metropolitan area is seeing values up just over 3 percent annually and is considered at a sustainable level, but Houston, while seeing the same price gain is overvalued based on its economy.

Home prices in Denver, Houston, Miami and the Washington, D.C., metropolitan area now exceed sustainable levels.

Posted on August 13, 2017 in: Uncategorized|Comments Off on Top 5 Zip Codes for Home Flipping and Rental Returns (See the full list)

Buying an investment property in a good neighborhood doesn’t have to mean sacrificing high investment returns — if you know where to look and are willing to look outside your backyard.

Among more than 1,000 U.S. zip codes with an A rating in the first-ever ATTOM Data Solutions Neighborhood Housing Index, the median home sales price in Q1 2017 was $410,684 on average, but the median sales price in 382 of those zip codes was under $250,000, with 27 zips below $100,000. This low-priced housing inventory in quality neighborhoods translates into stellar returns with lower risk for home flippers and rental investors.

The info graphic below shows the top 5 A-rated zip codes in terms of highest home flipping returns in 2016 and highest potential annual rental gross yields in 2017.

Posted on August 13, 2017 in: Uncategorized|Comments Off on Invitation Homes and Starwood merge to create nation’s largest single-family landlord

Three years ago, the nation’s four largest operators of single-family rental homes joined together to form the National Rental Home Council, a trade group that focused on increasing education about the professionally managed single-family rental industry and advocating for the benefits of the rental market.

The founding members of the group were Colony American Homes, Invitation Homes, American Homes 4 Rent, and Starwood Waypoint Residential Trust.

Now, thanks to a series of consolidations, that big four is about to be a big two.

Since 2014, the single-family rental industry went through a period of transition.

Most notable during that time was when Starwood Waypoint Residential Trust merged with Colony American Homes two years ago to form Colony Starwood Homes and created a single-family rental giant.

Now, just 41 months later, the industry is about to see its largest consolidation yet, as two of the remaining big three are about to merge to form a company that will be the nation’s largest single-family rental landlord, by a wide margin.

On Thursday, Invitation Homes and Starwood Waypoint Homes, which is the new name for Colony Starwood Homes, announced plans to merge.

That means the combined company will own and operate approximately 82,000 single-family rental homes, with an average of 4,800 homes per market.

In a joint release, the companies said that the deal is a 100% stock-for-stock merger-of-equals transaction. Upon completion of the deal, the combined company will operate as Invitation Homes.

In the release, the companies say that merging will allow them to “bring together the best practices, technology, and personnel from both firms to create the premier single-family rental company” in the country.

Additionally, the companies said that the merger “will produce a company with an unparalleled ability to deliver enhanced service offerings to residents more efficiently, continue investing in local communities, and generate substantial value for stockholders.”

The stockholder portion of the deal is significant, as Invitation Homes went public earlier this year, raising more than $1.5 billion in its initial public offering.

Under the terms of the deal, each Starwood Waypoint Homes share will be converted into 1.614 Invitation Homes’ shares, based on a fixed exchange ratio, the companies said.

Upon the closing of the transaction, Invitation Homes’ current shareholders will own approximately 59% of the combined company’s stock, while Starwood Waypoint Homes’ stockholders will own approximately 41% of the company’s stock.

Based on the closing prices of Starwood Waypoint Homes’ common shares and Invitation Homes’ common stock on Aug. 9, 2017, the companies say that the equity market capitalization of the combined company would be approximately $11 billion and the total enterprise value (including debt) would be approximately $20 billion.

Upon completion of the deal, the combined company’s shares are expected to continue trading on the New York Stock Exchange under the ticker symbol for Invitation Homes (INVH). Starwood Waypoint currently trades under the symbol “SFR.”

The deal is the latest development in an industry that’s seen some big shakeups in the last few years.

As stated above, Starwood Waypoint Homes was previously known as Colony Starwood Homes.

Just last month, the company announced that it was rebranding as Starwood Waypoint Homes, which reflected the sale in March by Colony NorthStar, Inc. and affiliates of Colony Capital, LLC of their entire remaining ownership stake in the company.

That company was formed by combining Colony American Homes, which was founded in 2012 to serve as Colony Capital’s single-family rental arm, with Starwood Waypoint Residential Trust.

Last year, Colony Starwood Homes exited the non-performing loans business, selling off 1,675 non-performing loans for $265 million, and stating that it planned to focus on single-family rental homes instead.

The company grew its portfolio earlier this year by agreeing to buy 3,106 single-family rental homes from GI Partners, a private investment firm based in San Francisco, for $815 million.

Now, the newly combined company will have more than 80,000 rental homes in its portfolio.

In its release, the combined company notes that while its portfolio will make it the largest single-family rental company in the country, its portfolio still represents “less than 0.1% of the more than 90 million single-family homes in the United States, and just 0.5% of the nearly 16 million single-family homes for rent in the United States.”

According to the two companies’ executives, the new Invitation Homes has plans to grow even more.

“This merger creates the leading single-family rental company in the United States, which will be uniquely positioned to deliver exceptional service to residents, while also improving operating efficiency. That is a win-win for both residents and stockholders,” Fred Tuomi, chief executive officer of Starwood Waypoint Home, said.

“We will have an irreplaceable portfolio of homes focused in select high-growth markets, offering unrivaled service and high-quality housing options for families choosing to rent,” Tuomi added. “We have great admiration for Invitation Homes and its talented team, and look forward to embarking on an exciting new chapter together.”

John Bartling, president and CEO of Invitation Homes, shared in Tuomi’s enthusiasm.

“By joining forces, the combined company will be in an even stronger position to serve residents and investors,” Bartling said. “By bringing together these two world-class organizations, Invitation Homes will continue building on its industry-leading operational capabilities and resident-centric approach – while also providing enhanced liquidity to stockholders.”

The companies note that the deal is not completed yet, but has been unanimously approved by the boards of both Starwood Waypoint Homes and Invitation Homes.

The companies note that they have “very similar” portfolios of homes focused on “overlapping, strategically selected, high-growth markets.”

The companies have nearly identical average monthly rents and nearly 70% of the companies’ revenues come from the Western part of the U.S. and Florida.

“The combined portfolio would also have an average of 4,800 homes per market, allowing it to leverage economies of scale and improve operating efficiency, while also enhancing customer service,” the companies said.

Posted on July 3, 2017 in: Uncategorized|Comments Off on Canada’s Real Estate Bubble Is About To Burst

Canadian home sales fell the most in five years last month. That didn’t stop an increase in prices, which were up 18 percent nationwide from a year earlier. When you consider that most houses are leveraged assets, this represents huge gains for homeowners.

While leverage can help boost performance on the way up, it becomes very dangerous on the way down. Leverage can turn even the best investments into poor ones when things go wrong, as losses are amplified. Equity can get wiped out pretty quickly on an overleveraged asset.

Canadian real estate has been on fire for years. The housing price data there has made the U.S. real estate market during the boom of the mid-2000s look mild.

The Federal Reserve Bank of Dallas puts out a global housing price index for more than 20 countries every quarter. Using this data, I looked at the real house price index data for Canada and compared it with the same data in the U.S. going back to 1975.

Here’s this relationship from 1975 through the end of 2005:

Although there were some divergences in the early and late 1980s, both housing markets essentially ended up in the same place after 30 years. Now let’s add in the most recent data to see how things have unfolded since:

An enormous divergence occurred in 2006, when U.S. housing prices really began to soften, while Canadian price barely skipped a beat. This makes any differences in the past look like blips. The rise in Canadian real estate prices has been relentless.

The U.S. housing market peaked in late 2006. Since then, based on this index, U.S. housing prices are still down almost 13 percent from their peak through the end of 2016. In that same time frame, Canadian housing prices are up 56 percent.

To recap: On a real basis, Canadian housing prices experienced a much smaller, shorter decrease in prices during the financial crisis and a much larger, longer increase in prices during the recovery. When you couple this unfathomable rise in housing prices with near-record high household debt-to-income ratios, the Canadian housing bubble starts to look scary should the tide turn.

The reason homeowners in Canada should be worried is because housing is typically not a great long-term investment. Housing expert and historian Robert Shiller explains:

Here is a harsh truth about homeownership: Over the long haul, it’s hard for homes to compete with the stock market in real appreciation. That’s because companies whose shares are traded on a stock exchange retain a good share of their earnings to plow back into the business. The business should grow and its real stock price should also grow through time — unless the company makes poor decisions, as some certainly do.

By contrast, real home prices should decline with time, except to the extent that households shell out some money and plow back some of their incomes into maintenance and improvements, because homes wear out and go out of style.

The problem is that the home-buying experience is fraught with emotion. People rarely think about the characteristics of real estate as an investment when putting down roots and making the biggest purchase of their life. Once the herd mentality sets in these things take on a life of their own. In downtown Toronto, the average sale price of a detached home this spring was $1.2 million.

No one knows when insanity like this will come to an end. Bubbles are like an avalanche. The longer they build up, the worse they will be when they eventually destabilize.

The same is true of financial markets. No one really knows when or why bubbles come to an end, but eventually people come to their senses and the music stops. U.S. homeowners understand all too well what can happen to the economy when the housing market destabilizes. The timing is impossible to predict, but Canadians should be on avalanche alert.

About Us

MATT ANDREWS is a real estate investor, serial entrepreneur, growth hacker, film producer, and #1 bestselling author. He is best known for the “Real Estate Investors Guide” book series, the Real Estate Freedom Podcast, and founder of Real Estate Freedom.